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Cash
Flow
I was tempted to make this the only tip, perhaps because
when I was writing it I was going through one of my
regular cash flow crises, so important is it. Unless
you can pay the interest and bills in operating your
business then you will go bust. It is essential that
you have sufficient reserves to ensure any expected
contingency can be met. Three months running cost would
be considered prudent. I am the wrong person to give
this advice as if I had three months reserves I would
buy more property! By reserves I do not mean cash in
the bank, I mean available credit lines, for example,
credit cards, bank overdrafts etc.
Preserve
your Capital
Once you have done your capital you limit your
ability to buy more property to buying below market
value (BMV) and you will have to spend out for expensive
bridging finance. Preserving your capital does not mean
always having to buy BMV though this is a useful strategy.
Too many people think they must only buy BMV without
considering the alternatives. This often prevents them
from buying because they cannot find a BMV property
or buying unsuitable properties just because they are
BMV. In a rising market all properties bought today
will be BMV in a short while. This is a novel way of
looking at it.
Buy
the Best
I believe it is better to buy the best type of property.
If property is rising at 10% pa which is about the average
rate of property inflation, then in two years you will
be able to release sufficient capital to start over
again. OK, if you only want to buy a property every
two years but if you consider I have known people to
have spent longer trying to find their first BMV property.
To start with this may work out because by the time
you have bought, prepared and got to grips with operating
your first property the best part of a year will have
passed and you will need time to find your next property.
The other alternatives are to buy property to which
you can add value by renovating, improving, extending
or turn into a HMO and valuing it on income. See my
book ‘How to Become a Multimillionaire HMO Landlord’
for more on valuing on yield.
Maximise
your Credit
Obtain as many credit facilities as you possibly
can. Credit cards are amongst the best forms of credit
you can have, they cost nothing while they are not being
used or to obtain. Many offer low cost or free balance
transfers which are useful to use when you need them.
The second most useful form of credit are bank overdrafts
again you can get some which cost nothing to open and
have an overdraft facility. Of less use but still worth
having are credit accounts with suppliers. Do not forget
private lenders, people who have surplus cash who are
looking for a better rate of interest than they get
from the bank or may be interested in a joint venture.
Always
ask for finance
Getting finance is not easy especially if you
are buying out of the average properties or want to
multi let the properties. Attend property shows and
events and if a lender or mortgage broker is there talk
to them, explain your requirements and see if they can
help. I have by chance come across very useful lenders
by that means. Do not rely totally on mortgage brokers;
they rarely cover the whole market.
Do
not expect logical behavior
From anyone in the buy to let market e.g. lenders,
valuers, regulators, Local Authorities, courts, tenants
etc. Just accept what is and get on with it –
With lenders I have given up trying to understand them.
One lender will be exiting the market but will not tell
you so you waste time and money applying for non available
finance while two more will be charging in with a shed
load of money. Lenders remind me of a panicked herd
of sheep who just run in the same direction because
others do. Valuers are beyond contempt; the arrogance
of some is unbelievable. I have strongly disagreed with
some valuers over a property value or more often rental
income. I have 500+ units of accommodation yet I am
told I cannot get the rent level I do and have been
getting for years! My greatest contempt is reserved
for the regulators, Local Authorities and courts for
their bias against Landlords their hypocrisy and stupidity.
They have little excuse the evidence is clear that what
they are doing is wrong and reducing the supply of accommodation
yet for reasons beyond me, they ignore good sense and
create and often zealously enforce counterproductive
legislation.
Understand
your market then trust your instincts
Once you know what you are doing take very
little notice of what others say and just get on with
it. There is so much conflicting information out there;
you just have to trust yourself to make the right decision.
Be very cynical of those giving advice. Ask what do
they know about the subject and be even more careful
if their advice results in a profit for them. The difficulty
with this one is when do you understand the market?
The wise are always open to new ideas yet are prepared
to stand by their own opinion. Decisions in this business
can make or lose substantial sums of money and are not
easy to unwind.
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